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Tuesday, August 18, 1998

Nip state-run banks stake below 51%, Centre told 

Tamal Bandyopadhyay  
Mumbai, Aug 17: Bank of Baroda chairman K Kannan has made a strong pitch for dilution of government stake in public-sector banks below 51 per cent. During a presentation before the Standing Committee of Parliament on Finance last week, Kannan called for a "reduction of government holding to even less than 51 per cent in nationalised banks".

This is perhaps the first instance of a nationalised bank chairman favouring dilution of government state in the banking sector. The second Narasimham Committee is also in favour of paring government shareholding to 33 per cent. The finance ministry, however, has yet to take a decision on the crucial issue considering its political implications.

"Public-sector banks should be encouraged to raise capital from the market. At present, the laws stipulate that not less than 51 per cent of the share capital of public-sector banks be vested with the government...The committee would suggest that the minimum shareholding by government/Reserve Bank in the equity of nationalisedbanks and State Bank of India be brought down to 33 per cent," the panel report said.

Taking a leaf from the report, Kannan said, "A sustained expansion of the balance sheet needs capital infusion, which is possible only through fresh capital contribution by the exchequer or tapping the equity market. The profit-making banks are capable of raising equity from the market...This will, however, require further dilution of government holding."

The Bank of Baroda chief has suggested that development financial institutions pick up shares in nationalised banks "ensuring an indirect government control". The North Block is, however, not in favour of cross-holdings in the banking industry.

Kannan has also sought government clearance for raising equities abroad through issuance of global depository receipts. "Banks with overseas operations should be permitted to access the international market for raising capital in foreign currency," he said.

Kannan has also called for freeing banks from the shackles of dualcontrol of the finance ministry and Reserve Bank. "These two roles (ownership and regulation) are not complementary to each other and, hence, should not be performed by the same body," he said adding that this leads to duplication of roles.

"While the government is the owner of public-sector banks, its regulatory function should be fully vested with the Reserve Bank... There is also a need for moving away from on-sight regulation to off-sight self-regulation," he said. Kannan has suggested that the central bank focus on macro-management of banks, leaving micro-management to the commercial wisdom of individual bank boards.

The Narasimham panel has also called for a change in the central bank's role. "The Reserve Bank as a regulator of the monetary system should not be the owner of a bank in view of a possible conflict of interest," the panel report said.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.


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